Gold & Silver Trading Alert: Gold Rallies With USD Above 90

In our opinion no speculative short positions in gold, silver and mining stocks are currently justified from the risk/reward perspective.

The USD Index moved slightly above the key, long-term resistance level but gold rallied by almost $20 on Friday. We have seen several bearish signs in the precious metals market recently – is the above bullish enough to make the overall outlook for the precious metals market bullish?

Not really. Gold didn’t move above the previous resistance levels, so actually not much changed and most of what we wrote last week remains up-to-date. Let’s start today’s analysis with the USD Index.

In the previous alert we wrote the following:The USD Index moved higher only insignificantly, and we don’t see much change on the short-term chart. One could argue whether there was a short-term breakout or not, but even if we agree that there indeed was one, it’s not confirmed. Consequently, the short-term picture doesn’t provide us with much new information.

The USD Index closed the week above 90 and also above the rising short-term resistance line, so the short-term breakout is confirmed. The implications for the next several days are bullish.

Let’s take a look at the situation in the USD Index from the very long-term perspective.

The USD Index has just encountered a major resistance line that it needs to surpass before a rally to 92 becomes very probable – the 38.2% Fibonacci retracement levels based on the entire 2002 – 2008 decline.

The Fibonacci retracements have worked for the USD Index many times in the past, so it could be the case that this level will keep the rally in check for some time. If not, and we see a confirmed breakout, then we’ll likely see another big rally – to the 92 level or perhaps even to the next retracement at 96.11.